State of the Industry

2017 continued to be a year of growth for the United States tea industry. Consumption of tea continued to penetrate all demographics. Millennials, Gen Xs, Gen Ys, Baby Boomers, will ensure that tea is on the front burner for years to come. And we welcome Gen Z’s to the family of tea consumers, who may very well be the largest tea consumers yet!

According to statistics from ITC (International Tea Committee), the United States is stillthe only western country to grow in both tea imports and consumption.

The overall market is healthy and continues to grow in the U.S., with a 1% increase in total tea imports. Black tea imports rose 2.3%, but green tea imports are down. Overall cost of tea is anticipated to rise as the industry experiences price increases in both items used in tea production including cardboard and paper as well as energy and labor costs.

Ready-to-drink (RTD) tea continues to grow and is estimated to have grown about 3 – 4% and account for some 45.7% of the tea market share in 2017. Category volume will exceed 1.7 billion gallons in 2017. While more expensive than bagged tea on a per-serving basis, consumers continue to reach for RTD teas for their flexibility, convenience and as a healthier alternative to sugary beverages. Once again, the U.S. is seeing further market separation between premium, high quality RTD’s and the value segment. Other formats including loose, bagged, mixes and pods appear to have gained back lost share from 2016 and are still lagging in growth, but continue to account for more than ½ of the market. Private Brands are growing in both volume and dollars. Encouraging is the fact that tea continues to grow, driven by its healthy positioning, in an environment in which water has surpassed CSD’s in sales. The linkage between tea and its healthful properties remains fundamentally strong.

Specialty Tea is still driving interest and consumption in the category. Consumers across all demographics continue their “grazing” for new and different beverage options and flavors, further underscoring specialty tea’s unique position for further growth. The interest in terroirs, flavors, origins, bush to brand and sustainability of these high quality, higher priced teas confirms that the analogy to wine is stronger than ever. While on a smaller base, specialty teas continue to enjoy high single/low double digit growth. In fact, specialty iced tea came in at #4 on the National Restaurant Association’s (NRA) What’s Hot Culinary Forecast list of top non-alcoholic beverages for 2017.

The trends in Artisanal teas remain the same and continue to grow at a fast clip, albeit on small volumes. Consumers are becoming more engaged with their teas and want to learn more and more about where their teas come from; how they are harvested and manufactured; how the product supports the livelihoods of those making it; and, how friendly the product is to the environment. Tea growing is expanding in the U.S. (albeit at VERY small volumes), answering the call of locally grown and farm to table trends. Countries of origin are also protecting and advertising their teas through geographic designations and terroir trademarks.

The foodservice market continues to grow with tea becoming a more and more important offering in all types of restaurants. Foodservice establishments that are creating and leveraging “tea culture” are experiencing both solid growth and loyal, repeat customers.

ESTIMATED VALUE OF THE UNITED STATES TEA INDUSTRY

1990

2014

2015

2016

2017

Traditional Market

(Supermarket, Drug and Mass Merchandisers)

$0.87 Billion

$2.51 Billion

$2.58 Billion

$2.54 Billion

$2.58 Billion

R-T-D

0.20 “

5.23 “

5.56 “

5.80 “

6.00 “

Foodservice

0.50 “

1.20 “

1.23 “

1.35 “

1.50 “

Specialty Segment

0.27 “

1.90 “

2.09 “

2.25 “

2.50 “

Total Sales

$1.84 Billion

10.84 Billion

11.5 Billion

12.0 Billion

12.5 Billion

Food & Beverage Trends Impacting the Industry

Several food and beverage trends are motivating consumers to choose tea and are a driving force behind its growing popularity in the U.S. Consumer interest sparked by tea’s healthfulness, variety, availability and sustainability, will hold steady, if not grow throughout 2018.

Health and Wellness – There continues to be a focus on foods and beverages with functional benefits and naturally healthy offerings. Many consumers understand the functional health benefits of tea and reach for tea as a better-for-you alternative to sugar-laden beverages. In fact, green tea continues to be on the list of top 10 superfoods for 2018 from the What’s Trending in Nutrition survey of more than 2,050 registered dietitians.

Natural Foods – “Naturalness” continues to drive consumers who demand foods that are closer to their unrefined or pure state. Consumers across all demographics are seeking “less processed” food and drink, incentivizing companies to remove artificial ingredients. This trend will also encourage consumers to reach for foods in their most natural, original form, such as true teas, for health benefits, instead of supplements and nutraceuticals. Tea is a natural, simple and whole food.

Variety and Availability – Consumers seek new experiences and discoveries, including the discovery of new and differentiated flavors, formats, and occasions. Both brick and mortar and on-line tea shops provide accessibility different and unique varieties of tea.

Transparency – Storytelling is key. Tea has a great story to tell, from its history, countries of origin, manufacturing techniques, and unique flavors, to its varied colors and shapes. Tea satisfies consumers’ need to know as much as they can about what they are eating and drinking.

Sustainability – Environmental sustainability continues to be an important factor for consumers when making purchasing decisions. U.S. consumers choose foods that are seen to be natural and having minimal impact on the environment. Social, environmental and economic sustainability are now seen as being equally important. Tea growers will seek to not only benefit economically from their product, but must work to preserve their social mores and customs.

Marketing & Innovation

To continue to attract consumer interest, frequent innovation and new products are key drivers for the category. According to Beverage Marketing Corporation, innovation is of increased importance in the beverage category. Innovation will focus on a consumer-centric approach through the creation of new moments of consumption, new levels of sophistication, new ways of interacting with consumers, and more “lifestyle beverages.” Some key areas of growth will be:

Cold-brew Teas – The U.S. is an iced tea drinking nation, and cold brewing carved out a new segment within the RTD coffee and tea beverage category. Cold brew tea has gained some interest, purportedly creating a more mellow iced tea.

Kombucha Tea – Fermented foods is the number one item in the What’s Trending in Nutrition 2018 survey of RD’s. Kombucha tea is becoming more widely available at retail and in restaurants. The fermented beverage is intriguing to today’s health-conscious consumer.

Whole Leaf Teas – Whole leaf teas and naturally flavored teas are not only continuing to increase in popularity among consumers, especially millennials, but across all demographics. Consumers who are looking for the “story” behind their favorite products have a treasure trove of history, terroir and tradition to investigate with tea.

MatchaGreen Tea – Matcha continues to drive consumer interest and is a favorite among health conscious consumers and beverage drinkers. Social media has also played a role in helping to make it a very trendy and widely known type of tea. In fact, Matcha tea can often be seen in the social media posts of health and wellness influencers who use creative angles and filters to share images of their freshly brewed cups of Matcha tea. Matcha is also very versatile and can be prepared and enjoyed in many different ways.

Sweeteners – The FDA Nutrition Facts Panel change is now in effect, encouraging companies to invest in and incorporate alternative sweeteners and natural ingredients such as fruits and vegetables in their offerings.

Overarching Trends

U.S. Retail – In the Capital Groups “Quarterly Insights”, the “Amazon Effect” is mentioned. “The depth of the threat from e-commerce – primarily from the online colossus – accelerated in 2017, and the strains on traditional brick-and-mortar retailers are likely to become even more acute in the next several years. Even well-known companies with previously unassailable business models have failed to stem the market share losses.” Other issues:

Restaurant Closures

Reduced Mall Traffic

E-Commerce Clutter

Key Drivers of Change – Euromonitor identifies the following key drivers that will certainly impact, not only tea, but virtually every aspect of our lives over the next decade.

Shifting Economic Power

Technology

Population Change

Environmental Shifts and Pressures

Changing Values

Tea continues to grow, rooted in its naturalness, variety, sustainability and healthful aspects. I look forward to an exciting year for tea in 2018!